EU Market Update: Risk Aversion remains heightened in session; GBP slumps following BOE quarterly inflation report

Wednesday, May 16, 2012 5:51:17 AM TradeTheNews.com EU Market Update: Risk Aversion remains heightened in session; GBP slumps following BOE quarterly inflation report***Economic Data***
- (EU) ECB: €2.0B borrowed in overnight loan facility €1.6B prior; €788.4B parked in deposit facility v €788.2B prior
- (EU) Euro Zone Apr EU 25 New Car Registrations: -6.9% v -7.0% prior (7th straight monthly decline)
- (TR) Turkey Apr Consumer Confidence: 91.1 v 93.9 prior
- (AT) Austria Apr Consumer Price Index M/M: 0.4% v 1.1% prior; Y/Y: 2.3% v 2.4% prior
- (CZ) Czech Mar Current Account (CZK): 16.8B v 13.9Be >- (IT) Italy Mar Total Trade Balance: +€2.1B v -€1.1B prior; Trade Balance EU: €1.6B v €416M prior
- (UK) Apr Jobless Claims Change: -13.7K v +5.0Ke; Claimant Count Rate: 4.9% v 5.0%e
- (UK) Mar Average Weekly Earnings 3M/Y: 0.6% v 1.0%e; Weekly Earnings ex-Bonus 3M/Y: 1.6% v 1.4%e
- (UK) Mar ILO Unemployment Rate: 8.2% v 8.4%e >- (EU) Euro Zone CPI M/M: 0.5% v 0.5%e; Y/Y: 2.6% v 2.6%e; Core CPI Y/Y: 1.6% v 1.5%e
- (CH) Swiss May Credit Suisse ZEW Expectations Survey: -4.0 v +2.1 prior
- (IC) Iceland Central Bank (Sedlabanki ) raised 7-Day Lending Rate by 50bps to 5.50%
- (EU) Euro Zone Mar Trade Balance Seasonally Adj: €4.3B v €3.8Be; Trade Balance unadj: €8.6B v €4.0Be
Fixed Income: >- (RU) Russia cancelled its 10-Year OFZ Bonds
- (EU) ECB alloted $300M in 7-Day USD Liquidity Tender at fixed 0.66% vs. $326.3M prior
- (FR) France Debt Agency (AFT) sold €8.0B vs.€7-8B indicated range in 2014, 2015, 2016 and 1017 BTANs, OATs
- Sold €2.505B in 0.75% Sept 2014 BTAN; Avg Yield 0.74% v 0.85% prior; Bid-to-cover: 2.97x v 2.29x prior
- Sold €945M in 3.5% Apr 2015 OAT; Avg Yield 0.95% v 1.06% prior; Bid-to-cover: 4.58x v 3.0x prior
- Sold €895M in 3.25% Apr 2016 OAT; Avg Yield 1.37% v 2.80% prior; Bid-to-cover: 4.97x v 4.50x prior
- Sold €3.651B in 1.75% Feb 2017 BTAN; Avg Yield 1.72% v 1.83% prior; Bid-to-cover: 2.04x v 2.69x prior
- (DE) Germany sold €4.107B in 1.75% July 2022 Bund; Avg Yield 1.47% (fresh record low) v 1.77% prior; Bid-to-cover: 1.5x v 1.1x
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
***Notes/Observations***
- China's "Big Four" state-run banks have issued almost no new yuan loans in the first half of May
- Germany and ECB said to be at odds over EFSF guarantees
- UK Claimant Count registers its largest monthly decline since July 2010
- ECB holding a previously scheduled meeting in Frankfurt
***Equities*** >FTSE 100 -1.1% at 5378, DAX -1% at 6335, CAC-40 -0.10% at 3036, IBEX-35 -1% at 6636, FTSE MIB -0.40% at 13,253, SMI -0.05% at 5860
- European equity indices opened the session broadly lower, as indices have been pressured by banks. Additionally, resource-related companies opened lower following cautious comments out of BHP about the outlook for commodity prices. Concerns about Greece have continued to weigh on the markets, following reports from yesterday that the country is expected to hold elections in mid-June. Also, Greek banks have been in focus, amid reports that deposit outflows have accelerated following the recent Greek parliamentary elections. In terms of upcoming event risks, the US Fed is due to release the minutes from its most recent policy meeting later today. Also on Thursday's session, Spain is due to sell 2015 and 2016 bonds.
- UK-listed construction and engineering services company Lamprell [LAM.UK] has declined by over 60%, after disclosing a profit warning. Additionally ,shares of Bovis Homes [BVS.UK] and Land Securities are trading lower, following the release of their respective earnings reports. German names Rheinmetall [RHM.DE], Lanxess [LXS.DE], Prosieben [PSM.DE] and Symrise [SY1.DE] have all been weighed down by ex-dividend factors. In France, EADS [EAD.FR], EADS has gained over 1% following its Q1 earnings release. Swiss luxury watch maker Richemont [CFR.CH] has gained over 4%, as the company reported better than expected FY11 results. Danish shipping name AP Moller Maersk [MAERSKB.DK] has lost over 5% amid concerns about the company's 2012 outlook. Shares of Italian bank, Banca Monte Paschi have lost more than 2%, after the company reported a y/y decline in its Q1 net profit. Monte Paschi also reported a 4.9% sequential rise in its bad loans in Q1.
Speakers: >- Bank of England Releases Quarterly Inflation Report which raised inflation forecast with CPI seen above 2% for the next year or so compared to its Feb forecast of until Q4 2012. The report noted that Inflation report chart shows CPI at around 1.6% in 2 years and at 1.8% in 3 years assuming market interest rate path and AFT steady at £325B
- BoE Gov King stated during Q&A that contingency plans were being discussed for some time with UK Treasury and FSA regarding the euro area. On QE decision he noted that ultimately have to be driven by inflation outlook, last week decision consistent with that idea.
- Germany Fin Min Schaeuble reiterated the view that all wanted Greece to remain in the Euro but the Greek political parties had the choice and it was their responsibility. He stressed that differences between Chancellor Merkel and new French President Hollande were not large and that Germany economic growth was robust because the country was reducing its deficit. Lastly he noted that was working on Financial Transaction Tax (tobin tax) in a smaller group of EU members
- Spain PM Rajoy commented that Spain faced risk of astronomical borrowing costs in an address to Parliament
- Ireland PM Kenny noted that enormous challenges lie ahead; Ireland will continue to meet all commitments
- Ireland Fin Min Noonan stated that he hope to get back to bond market by end 2013 but might not due to uncertainty in Europe. He added that it was not a guarantee that Greece would leave the Euro Zone and maybe Greece needed a referendum whether to stay in the EMU
- Finland PM Katainen: Risk of contagion from Greece as the situation is threatening Spain, Italy and Portugal
- China PBoC Gov Zhou commented that China to steadfastly prevent systemic financial risk
- Poland Fin Min Rostowski commented that he expected there would be some significant weakening of the PLN currency (Zloty) due to Greece fears
- India Central Bank Dep Gov Kahn stated that the RBI was closely watching INR currency volatility and it would take all steps to curb such volatility
- India Central Bank Chakrabarty commented that the RBI would only intervene in FX markets to curb INR volatility
- Russia Central Bank Gov Ignatyev stated that Apr YTD Capital Outflows was $42B and that such outflows remained a serious problem for the economy. The CBR remained determined to hold inflation between 5.0-6.0%
- India Fin Min Mukherjee: Reiterates India's growth story is intact
Currencies:
- Euro zone crisis remain the leading influence in the session and kept the USD well supported against the majors and commodity-related currency pairs. The session began with a heightened amount of risk aversion prevalent but by mid-morning sentiment calmed down. Perhaps that the ECB was holding a previously scheduled conference today on Monetary Policy Conference in Frankfurt helped ease concerns. However some dealers misconstrued it as an 'emergency meeting'
- The EUR/USD continued to hit fresh 4-month lows as it tested 1.2682 in the session. The European peripheral yield was higher with the 10-year Spanish/German Gov't bond spread at 510bps for fresh EMU record. Dealers were on guard whether Moody's would make any cuts in Spanish banking sector after doing so for Italy earlier in the week. The 10-year Italian bond yield pushed firmly above the 6% area but a move towards 7% would heighten concerns and possible re-activate the ECB SMP program. With Greece heading for fresh elections next month, fears of capital flight mounted and yesterday the Greek central bank confirmed that €700M in deposit had been withdrawn in recent days.
- The implication on global growth was also on the minds of traders. China's "Big Four" state-run banks were said to have issued almost no new yuan loans in the first half of May. The AUD/USD pair was suffering not only from euro zone risks, yet also concerns that activity in China's economy may be faltering
- The GBP slumped lower to approach 1.5900 after the BOE inflation report which did raise its short term CPI view but overall remaining in target in 2-3 year time frame
Political/ In the Papers:
- The CBRE Group expects further defaults in European commercial real estate loans due to declining rents and occupancies. The trend is affecting many areas, now including large city centres such as London and Frankfurt. Values are currently down by almost 20% from their peaks in 2007.
- With the concerns related to a possible Greek collapse, the Irish Independent calculated that such an event would cost each Irish resident €380. It added that the true costs would be greater because Ireland would have to deal with a five-year financial crash if Greece were to exit the currency. According to Citi, the loans to Greece now stand at €160B, owed either to the ECB or euro zone countries as a share of the bailout (with Ireland's portion calculated at slightly above 1%, or a little over €380 per person). The independent clarified that the exact figure is difficult to assess due to Ireland's own euro zone loans.
- The Telegraph's Ambrose Evans-Pritchard looked at the risks related to Italian banks noting that the contracting economy is a challenge for domestic banks, as Italian banks are highly exposed to the economy. He also added the contagion risks that Italian banks face in relation to Greece.
- The ECB was said to have cut liquidity support for Greek banks according to the Dutch press. The cut in support was due to Greece holding off on recapitalizing its banking system, although it received €25B in funds for that purpose. At the end of January, Greek banks received €73B in liquidity support from the ECB, although the amount was down by over 50%.
***Looking Ahead***
- 6:00 (PL) Poland to sell New 5-Year Fixed Rate Bonds
- 6:00 (RU) Russia to sell Up to RUB20.0B in 10-Year OFZ Bonds
- 6:00 (FR) France Debt Agency (AFT) to sell I/L 2022, 2023 and 2027 Bonds
- (IT) IMF mission visit to Italy
- 6:00 (GR) Greece interim govt expected to be announced; election date
- 6:00 (DE) German Govt Advisor Feld
- 6:00 (PT) Portugal Q1Unemployment Rate: No est v 14.0% prior
- 7:00 (UK) Prime Minister's Question Time in House of Commons
- 7:00 (US) MBA Mortgage Applications w/e May 11th: No est v 1.7% prior
- 7:00 (ZA) South Africa Mar Retail Sales Constant M/M: No est v -2.2% prior; Y/Y: No est v 7.2% prior
- 8:00 (PL) Poland Mar Current Account: No est v -€1.6B prior; Trade Balance: No est v -€838M prior
- 8:30 (CA) Canada Mar Manufacturing Sales M/M: No est v -0.3% prior
- 8:30 (US) Apr Housing Starts: 685Ke v 654K prior; Building Permits: 730K v 764K prior (revised from 747K)
- 9:00 (DE) German Fin Min Schaeuble speech on crisis themes: University of Aachen
- 9:00 (EU) ECB's Monetary Policy Conference in Frankfurt
- 9:15 (US) Apr Industrial Production: 0.6%e v 0.0% prior; Capacity Utilization: 79.0%e v 78.6% prior; Manufacturing Production: No est v -0.2% prior
- 10:30 (US) Weekly DOE Energy Inventories
- 11:30 (BR) Brazil Central Bank weekly currency flows
- 12:00 (US) World Bank President Zoellick
- 12:30 (US) Fed's Bullard speaks on US Economy in Louisville, Kentucky
- 12:45 (EU) ECB member Gonzalez-Paramo
- 14:00 (US) Fed Releases Minutes from April 24-25 FOMC Meeting
- 14:00 (US) Minutes of FOMC Meeting
- 17:00 (CO) Colombia Mar Trade Balance: No est v $537.2M prior; Imports CIF: no est v $4.5B prior
- 18:00 (HU) Hungary Central Bank Gov Simor speaks at EBRD Conference
- 18:00 (HU) Hungary Central Bank VP Kiraly speaks
- 18:00 (EU) EU's Juncker speaks at German Fin Min Schaeuble award ceremony in Aachen, Germany
- 18:00 (CL) Chile Central Bank Economists Publish Report
- 19:50 (JP) Japan Q1 Preliminary GDP Annualized: +3.5%e v -0.7% prior; GDP Q/Q: +0.9%e v -0.2% prior; Nominal GDP Q/Q: +1.0%e v -0.5% prior Legal disclaimer and risk disclosure All information provided by Trade The News (a product of Trade The News, Inc. "referred to as TTN hereafter") is for informational purposes only. Information provided is not meant as investment advice nor is it a recommendation to Buy or Sell securities. Although information is taken from sources deemed reliable, no guarantees or assurances can be made to the accuracy of any information provided. 1. Information can be inaccurate and/or incomplete 2. Information can be mistakenly re-released or be delayed, 3. Information may be incorrect, misread, misinterpreted or misunderstood 4. Human error is a business risk you are willing to assume 5. Technology can crash or be interrupted without notice 6. Trading decisions are the responsibility of traders, not those providing additional information. Trade The News is not liable (financial and/or non-financial) for any losses that may arise from any information provided by TTN. Trading securities involves a high degree of risk, and financial losses can and do occur on a regular basis and are part of the risk of trading and investing.